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Rainbow Grocery Written Research Report for my Culminating Experience MBA requirement.
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San Francisco State University Bus 890
RAINBOW GROCERY COOPERATIVE By: Lisa Chang, Maria Rodriguez and Natacha Yarbrough
Table of Contents
Company Profile ........................................................................................................................................... 1
Mission Statement ....................................................................................................................................... 1
Business Model and Cooperative Culture ................................................................................................... 2
Sustainability Efforts .................................................................................................................................... 4
External Environment Analysis .................................................................................................................... 4
Overview ................................................................................................................................................... 4
Porter’s Five Forces ................................................................................................................................... 5
SWOT Analysis: Opportunities and Threats .............................................................................................. 7
Internal Environment Analysis ..................................................................................................................... 8
Overview ................................................................................................................................................... 8
SWOT Analysis: Strengths and Weaknesses ............................................................................................. 8
Business-level Strategy: Diamond Framework ......................................................................................... 9
Problem Identification ............................................................................................................................... 10
Internal Communication ......................................................................................................................... 10
Marketing ................................................................................................................................................ 10
Recommendations ..................................................................................................................................... 11
Internal Communication ......................................................................................................................... 11
Marketing ................................................................................................................................................ 13
Conclusion .................................................................................................................................................. 15
References .................................................................................................................................................. 16
Exhibit 1: Organic Products and Market Share ......................................................................................... 18
Exhibit 2: Porter’s Five Forces ................................................................................................................... 19
Exhibit 3: SWOT Analysis............................................................................................................................ 20
Exhibit 4: Competitor Analysis ................................................................................................................... 21
Exhibit 5: Tangible and Intangible Resources ............................................................................................ 22
Exhibit 6: Diamond Framework ................................................................................................................. 24
Exhibit 7: Rainbow Green Business ........................................................................................................... 26
Exhibit 8: Rainbow’s Departments and Committees ................................................................................ 27
Exhibit 9: Interview .................................................................................................................................... 28
1
Rainbow Profile
Rainbow Grocery is a grocery cooperative in the Mission District of San Francisco
founded in the summer of 1975. It was originally part of the Peoples Food System, which was a
network of small community food stores in San Francisco. It is a “cooperative,” meaning that it
is owned and operated solely by its workers. A business concept ahead of its time, California did
not have a corporate statute for worker cooperatives when Rainbow was initially founded but the
store has always been managed as a “coop.” It was officially incorporated as a cooperative in
1993.
The original founders Rich Israel, John David Williams, Janet and Bill Cronius started as
volunteers. The store was an outgrowth of spiritual community which eventually evolved into a
secular project. Its initial goal was to provide pure, inexpensive, vegetarian foods to the public.
In order to keep the prices low, food had to be had to be ordered in bulk which led to the creation
of Rainbow. More than 40 years later with net profit of $6 million in 2013, Rainbow carries a
diverse product line of goods such as baked goods, bath and body, beer and wines, books and
gifts, bulk foods, bulk, herbs, cheese, housewares, packaged foods, produce, refrigerated goods,
sundried teas, and vitamins.
Mission Statement
Rainbow Cooperative’s mission statement states, “We strive to offer resources, education
and a forum for informational exchange for many local communities and organizations.”
(Rainbow, 2014). Rainbow is committed to making sure that their environment inclusive and
welcoming to all by:
● Providing affordable vegetarian food products which have minimal negative social and
ecological impact
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● Buying goods from local organic farmers, collectives, bakers, dairies and other local
businesses whenever possible
● Providing their customers with the best possible service
● Providing Rainbow Grocery Cooperative workers with a livable wage
● Creating a non-hierarchical workspace based upon respect, mutuality and cooperation
● Offering low-cost healthcare products and resources
● Supporting other collectives and worker-owned businesses
● Supporting fair labor practices
● Donating to local non-profit organizations and schools
● Encouraging bicycling, mass transit, and alternative transportation
● Composting all in-store green wastes; recycling, reducing and reusing resources
whenever possible
● Creating a diverse, non-discriminatory environment
Business Model and Cooperative Culture
Rainbow has created a strong and diverse business model while remaining true to its
vision of creating and sustaining a democratically-run, non-hierarchical workplace. This is why
Rainbow is one of the largest health food stores in the Bay Area, selling more bulk foods and
having a wider variety of herbs and supplements than any other store. The dedication and
commitment of Rainbow’s workers has been the dominant influence in establishing some of the
earliest legal standards for organic certification. Rainbow continues to stay true to its mission to
inspire others in the area of healthy food, cooperative organization and sustainable living.
Despite profitability, Rainbow’s motto is Food for People, not for Profit. Although it is a
for-profit company, the profits are re-distributed 100% to the membership in the form of shares.
In addition, it donates to community-based organizations that often go unrecognized by
corporate donors. As a worker-owned cooperative, workers share the common desire to work in
a non-hierarchical, democratic workplace where everyone’s opinion matters. Its initial goal of
selling in bulk to provide lower prices has been the staple of its business model.
Rainbow has had three locations during its thirty-nine year history. It initially opened on
16th and Valencia, which was considered “skid row.” This location spurred its growth because it
was in an area where counterculture youth aggregated. That growth enabled the store to start
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paying its two most active volunteers (Bill and Janet) a minimum wage salary and establish a
payroll for other workers after several months of consistent volunteering. For tax purposes,
ownership transferred to Janet and Bill and in 1976, whom later transferred ownership to a non-
profit corporation.
In 1983, Rainbow moved to a larger space at 15th and Mission where sales increased
68% during the first year. This enabled its workers to establish a group health insurance plan
and give themselves a raise. In 1996, Rainbow moved to its current location at 1745 Folsom
street, a 30,000 square feet facility, consisting of the main building and two parking lots.
Currently, Rainbow employs 260 people who are required to work a minimum of 25 hours per
week in order to maintain their worker-owner status.
Rainbow Grocery workers are rewarded for their hard work with an equal voice in the
company operations, including profit sharing at the end of the year. Through membership,
everyone has a chance to drive change by creating committees, formulating policies and
proposing new ideas. There are no set corporate guidelines except that workers opinions are
valued, respected and appreciated.
In order to work at Rainbow, one must become a member, which requires the staff to
work a minimum of 25 hours per week and to attend a number of financial, historical, safety and
customer service orientations. Workers must also attend decision-making bodies meetings and
pass a test in order to complete Rainbow’s membership requirements. This means that workers
can run for committees, vote at Membership Meetings and share in the financial surplus after
taxes are paid. The hiring, on-boarding and learning process takes about a year.
The structure of the company is non-hierarchical and decentralized. For instance, the
company does not have an organizational chart. Within this autonomous environment, there is a
Board of Directors, 18 Departments and various committees. In describing Rainbow’s
organizational structure, Matt Van Hoorebeke, a Rainbow worker and PR committee member
says, “We are non-hierarchical with a President and Board of Directors. The President and
Board of Directors are for the financial documents and have the same amount of voting rights as
other members do”(Exhibit 9). Van Hoorebeke further elaborates, “Each department is
responsible for its own day-to-day operations including schedules, ordering supplies, buying new
products, hiring new department members and in more serious cases, termination of employees.
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There are other committees that take on tasks that affect the entire store or disciplinary actions
that are beyond departmental matters.” (Exhibit 9)
Sustainability Efforts
Rainbow’s social reinvestment continues through multiple school programs, e.g. the
SCRIP program which gives 10% of student purchases back to their schools. In 2013, it gave
$43,000 to local schools. For other cooperatives, Rainbow offers all the know-hows on how to
operative the business. In 2013, Rainbow donated 100% of its 3-day profits to relief the disaster
cause by Typhoon Haiyan (Exhibit 9). Other social activities includes holding and participating
in number fairs and festivals to education customers on healthy living. Rainbow is extremely
involved with the community because not only it is the right thing to do, but also because the
business represents the city.
Rainbow is also aware of the carbon footprint of its operations. This is why it has an
Ecology Committee and R & D committee that work on new environmental initiatives (Exhibit
9). Matt Van Horebeke proudly stated that Rainbow is one of the first companies to be a certified
green businesses. He added, “We were green before the certification existed”. Other initiatives
includes: Daylight Harvesting Systems, energy-efficient compressors for the coolers, and solar
panels. Exhibit 7 illustrates of Rainbow environmental efforts.
Industry Analysis
Industry Overview or General Environment The organic produce industry has experienced exponential growth throughout the past
two decades. In, 2012 the total sale of organic foods was $28 billion while projects sales for
2014 will total $ 35 billion (United States Department of Agriculture, 2014). Before the organic
product boom in the late 90s, most consumers acquired their organic food and non-food products
from natural food stores and cooperatives. Rainbow Grocery Cooperative, Community Corners,
Noe Valley Community Stores and other community stores were the first movers in the organic
food industry in San Francisco. These organizations were instrumental in establishing organic
certification which later became the California Certification for Organic Farmers (Rainbow
Grocery, 2014). As the market for organic food and non-food products grew, many of the larger
supermarkets, like Costco and Safeway, gained significant market share. For instance, in 2006,
5
natural products stores held only 44% of the organic sales compared to 68% in 1991, while
conventional supermarkets had 46% of the market share compared to 7% in 1991 (Exhibit 1).
In order to get a better insight of the organic or natural and specialty food retail industry,
we will use Porter Five Force Model (Porter, 2008). Overall, the industry is attractive since
organic product market will experience constant growth because customers are becoming more
conscious about what they are eating (Exhibit 2).
Threat of New Entrants
The industry is very profitable this is it attractive to new entrants. The biggest threats in
this industry are large supermarkets such as Safeway, Walmart and Target that are starting to sell
organic products. These businesses take advantage of its already established value chain, large
number of stores and its resources to achieve economies of scale. We identified some barriers
which include brand recognition of existing organic food stores like Bi-Rite and Rainbow
Grocery. New entrants will find it difficult to establish itself as a high quality organic food store
because many of existing store have decades of history. Another barrier is knowledge in organic
food and non-food. It takes in-depth knowledge in the type of certification and sourcing to be
able to get quality organic food. New entrants have difficulty understanding what the market is
looking for and, very often, are stuck selling subpar produce like fruits and vegetables.
Bargaining Power of Suppliers
The bargaining power of suppliers in this industry is moderate. This is because there are
large number of organic product suppliers in the market so it is easy for companies to switch
from one supplier to the other. However, the supplier power can shift if there is only one or few
suppliers offering a specific good. For instance, if the supplier is local and unique, then it will
have more power. It is important to point out that, as the demand for organic produce continue to
increase, farmers have been struggling to produce to match demand. Much of which is because
of the difficulty in obtaining certified organic farmlands. In the past decade farmers have been
trying to convert their land for organic farming. Because of existing regulations, it will take at
least three years for farmers to be able to yield from these farm. As of 2011, California is the
state with the largest farmland for crops, approximately 545,000 acres (United States Department
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of Agriculture). Because of the high demand, farmers might have power in setting price and
choosing who they choose to supply their products to specialized organic retailers.
Bargaining Power of Buyers
The bargaining power of buyer is moderate. Buyers have increasingly more choices on
where to get their organic food. They can choose from small local markets like Rainbow Grocery
Co-op, larger markets like Whole Foods or superstores like Target and Walmart. They can
compare their offerings by price, convenience and brand. Furthermore, as many supermarkets are
offering organic products the switching cost becomes lower. Another challenge for stores and
supermarket is understanding what these buyers are looking for. A research study shows that the
only conclusive finding in the type of consumers that purchase organic food is that they have a
college education (Dimitri & Oberholzer, 2009). This shows that the market is highly segmented
with consumers ranging from having strong knowledge of the types of organic certifications to
people who just want to eat healthier and know little about organic certifications. As customers
become knowledgeable of the different organic certifications, they will expect higher product
quality.
Substitution
Substitution is low. There are two possible substitutions: GMO and non-organic products.
The substitute pricing plays an important part as GMO products and non-organic products are
cheaper than organics, which makes it more attractive for customer choosing groceries based on
price. Also, even though farmer markets are no product substitutes as it also offers organic
product. It can be a substitute on how customers get their products, instead of going to retailers.
Current statistics: For instance, 93% of organic sales takes place in through conventional and
specialized supermarkets, while 7% of sales occur through farmers market, food services, and
other retail stores (United States Department of Agriculture, 2014).
Competitive rivalry within the industry The rivalry in this industry is high. There are many players offering organic products
ranging from large supermarkets to mom and pop stores.
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Competitive Environment in San Francisco
Rainbow’s biggest competitors are health food stores that are comparable in size and
product variety. Its immediate competitors are BiRite Market and Other Avenue Cooperative.
However, those are not immediate threat to Rainbow due to its size, because those stores are
generally much smaller. First, BiRite only have 50 employees and one-tenth of Rainbow’s retail
space. BiRite also offers a smaller variety of product lines. According to Rainbow, WholeFoods
is the biggest threat because it offers a comparable variety of organic products. With this in
mind, WholeFoods is the largest organic food retail chain, currently have seven locations in San
Francisco. With an operation of over 300 stores nationwide (WholeFoods Market, 2014),
WholeFoods has the advantage of achieving economies of scale and scope; as well as brand
recognition. A more detailed breakdown of the competitor analysis can be found on Exhibit 4.
Opportunities and Threats Opportunities
There are many opportunities for Rainbow to strengthen its market position. With its
suppliers, Rainbow can establish strong relationships which will allow it to have a large and
unique variety of products. It may be able to establish exclusive contracts with these suppliers to
secure a competitive advantage. Rainbow can also take advantage of its long history to establish
brand recognition with the community through interactive events and activities. A detailed
SWOT analysis can be found in Exhibit 3.
Threats Besides losing market shares to large conventional supermarkets. In 2004, one of the
largest organic food stores, WholeFoods, opened its stores in San Francisco. Rainbow saw a
significant amount of customers switching to WholeFoods for the convenience of its locations.
As of now, WholeFoods have seven locations in San Francisco compared to the one location that
Rainbow has. Rainbow considered WholeFoods to be its biggest threat because WholeFoods
offers comparable variety of organic food and non-food products. Additionally, WholeFoods
also appeal to the younger generation with their pre-cook deli items.
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Internal Environment Resources
Rainbow Grocery is located in the Mission District in a 30,000 square feet store. It has a
vast list of tangible and intangible resources (Exhibit 5) which include: product line, equipment,
culture, and employee knowledge.
Capabilities Rainbow offers transparency in each product sold by labeling products based on the
supplier, location, and classifications such as organic or fair trade. Next, economies of scale is
another capability as Rainbow is able to do this by buying in large bulks. Another capability is
the education it provides to both employees and customers in organic food. Then, it has the
ability to partner with local organizations. Finally, with its green initiative the organization
composts all in store green waste, recycle, reduce and reuse resources. This allows the
organization to reduce costs and take advantage of tax rebates (Rainbow, 2014).
Core Competencies
The ability to sell high quality and exclusive meat free organic products and produce in
an inviting store layout. In addition to the ability to provide excellent customer service and
educating them about the sustainable lifestyle.
Strengths and Weaknesses
Rainbow Grocery main strength is that it is a one pit stop for all vegan and vegetarian
needs. Certainly it is the largest retail worker owned business in US offering locally produced
and premium international goods. Moreover, the staff is passionate about educating customers on
products and nutrition. This results in a unique shopping experience for customers. The
cooperative team environment is another strength as it allows the organization to provide
excellent customer service. Likewise, the cooperative has many community involvement projects
such as: nutrition and health classes, e-recycle, grants, bulk discounts, etc. In addition, it has one
of the best environmental practices in the industry and being sustainable has resulted in customer
loyalty.
Rainbow’s main weakness is its lack of subsidiaries. There is only one store and this
results in the diminished number of its customers, as not everyone is willing to travel to the
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Mission district for grocery shopping. Since all products are natural, its life cycle is shorter and
having a large perishable inventory is a risk. Finally, Rainbow’s marketing only relies on word
of mouth advertising. Furthermore, its flat structure and decision making might lead to
inefficiencies.
Strategic Analysis: Business - Level Strategy with the Diamond Framework
Arena
Rainbow Grocery is active in San Francisco’s grocery business. It provides affordable
vegetarian food products, natural personal care, and household items, which have minimal
ecologic and social impact in a single location. Noticeably, the store is inviting and designed to
take advantage of natural lighting and other elements resulting in energy efficiency. Its target
market is middle class health conscious customer looking for local ethical organic goods.
Vehicle
Rainbow is constantly looking in the local community for potential suppliers who share
the same sustainable philosophy. It has collaborated with the Sport Basement to educate and
encourage the public on healthy eating and the environment. In addition, it has worked with the
San Francisco Green Business Association in order to receive guidance in sustainability.
Differentiation
The cooperative differentiates itself by being a one stop for meat free organic products
and produce in San Francisco (Exhibit 6). It labels its products based on how it was sourced. It
also creates value by selling organic and local products in bulks and encouraging customers to
bring their own food container for honey and similar products. Moreover, it organizes events,
workshops, fairs, etc. for social and environmental causes regularly. Finally, unlike other
competitors Rainbow is employee owned.
Staging
Currently, Rainbow is not planning in any expansion. However, it is in the processes of
investing in new retail technologies to increase efficiency.
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Economic Logic
Rainbow reduces cost by buying and selling in bulks. Another factor is that its suppliers
are local so transportation cost in low. Furthermore, it has reduced its utility costs by investing in
energy efficiencies such as: daylight harvesting system, solar panels and solar thermal heaters.
Problems Identification
We have identified two major issues within the company. First, there is insufficient inter-
department communication. Members are often confused or left out of the loop on what is
happening in other departments. Another pressing issue is their marketing efforts. The company
is unable to sustain its first-mover advantage if it continues to depend on word-of-mouth as their
sole marketing effort.
1. Internal Communication
With 260 owner-workers, 18 autonomous groups and several committees, it is
challenging for these groups to communicate effectively. When the company was small and had
only a handful of departments, this structure worked very well for relaying information and
quick decision making. However, as the company scaled out, information got lost within these
groups and individual workers are unable to keep up with changes in operations that each group
has made. For example, the cashier team decided to ban cellphone use but the other teams are not
aware of such changes (Exhibit 9).
2. Marketing
For the past 40 years, Rainbow has depended on word-of-mouth as the only strategy to
attract and retain customers. However, due to digitalization and strong competition, it is no
longer sustainable. This is why it is crucial that it transition to other marketing platforms that will
help it reach and retain the younger generation. Rainbow has minimum presence in social
media, not only limiting the interaction with its customers but also lagging behind competitors
such as Whole Foods. For example, on Facebook, where Rainbow is most active, it has only
9,448 ¨Likes.¨ Likewise, Rainbow has 2,591 followers on Twitter. Rainbow tweets
intermittently, meaning sometimes it tweets every day for two or three days consecutively and
then it may not tweet for another three or four days. Its tweets are not consistent in terms of
11
industry standards, as most competitors tweet more than three times a day. Rainbow is also
active in LinkedIn, however, its profile contains only the business basic information. It is also
has a YouTube channel but Rainbow has only uploaded 1 video and this was two years ago the
video, How to Buy in Bulk has been viewed 4,863 times. Lastly, Rainbow has a Google+ page.
The page does not interact with its followers and only has a few pictures posted by Rainbow and
a description of the business with only 9 reviews posted by customers.
In the area of Public Relations, we had a very difficult time obtaining an initial interview
with the PR department representative, Matt Van Horebeke. We initially contacted them directly
two times by email and never received a response. It was only after two in-store visits to the
communications information desk that we got a response. So it can be assumed that the company
does not interact with customers, unless they visit the store.
Recommendations
Internal Communications Rainbow Grocery is proud of its corporate culture as it has been one of the few
cooperatives to remain in business for more than 30 years. Employees enjoy working there
because of the non-hierarchical structure with autonomous departments and committees.
However, the autonomous departments lead too many internal communication inefficiencies as
the company grows. As Rainbow scaled out, communication has become increasingly difficult.
They have decided to continue to create new autonomous groups and committees to better
manage all the functions. They currently have 16-18 departments and 7-10 committees. We
realized that it is infeasible to change the organizational structure, therefore, the structure will
remain non-hierarchical. We recommend two solutions. For short term, we recommend that the
Rainbow evaluate their current departments/committees and implement policies and procedures
to guide the groups. A long term solution, we recommend implementing an IT system that would
enable better communication among the groups and all members.
Short Term Solution
A thorough evaluation of the current business processes is necessary to find ways to
improve the communication flow. We organized the departments into three functions: customer-
facing, products and internal affairs (Exhibit 8) illustrates the three types and some of the
departments within them. From observation, departments within the same type are serving a
12
similar function. Customer facing departments have contact with customers, these departments
should be in constant communication. Decisions made within these departments will very likely
affect the other. Therefore, decision making within these department should allow feedback from
other departments of the same type. Same can be said for the departments in the products level.
The vendors and products they choose affect the overall offerings of the company. The
departments in the internal affairs provide support for the rest of the department, for example
accounting supports all the cash flow of the company. After understanding how the department
functions are related. As a short term solution, we recommend that Rainbow form new policies
and procedures for the groups that are within the same types. Policies and procedures should
enable other departments to provide input on decisions that would directly and indirectly affect
their impact. For example, when the cashiers made the decision to ban cell phones use at the cash
register, they should inform and allow input from the PR and customer service departments.
Currently, new information is transmitted through bulletins and emails. Large amount of emails
can easily get lots and not all departments post on bulletins. Another short term recommendation
is to have a monthly newsletter to update members on all the major changes within each
departments.
Long Term Solution
As the company continues to grow, it will need a solution that is scalable. Rainbow can
implement an information technology system that not only improve the decision making process
but provide transparency on what is happening within each department. We recommend
Salesforce CRM with which will allow for:
● Collaborative environment for users: emails, chats, video conferencing
● Easy access to information: vendors, sales, procurement, inventory
● Automated accounting activities allow for financial analysis and better cash flow
management
● Ability to see progress of various projects within the organization
● Real time information updates
● Vendor and customer relationship management
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One of the biggest challenges is getting the members to understand that these changes are
necessary and getting them involved in the process from research to implementation, as they will
be resistant. If members are involved in deciding in the solution, they will accept and commit to
the change. Keeping true to Rainbow’s core value, all members will be involved in deciding on
the solution to increase communication.
External Communications- Marketing
Since its foundation, Rainbow has relied on a single passive marketing strategy: word of
mouth. This strategy has proven to be inefficient as the company is facing the issue of attracting
and maintaining customers, particularly the younger generation. In order to increase its brand
value and capture a larger market share in San Francisco, it is crucial for Rainbow to develop a
new strategy. This can be done in the following ways:
Establishing a physical presence in the community A ways in which Rainbow can establish a physical presence within the community is to
partner with the local schools it already works with to offer healthy lifestyle cooking classes as in
the past years there has been a trend of eating healthier. Given that it already has an established
relationships with these local schools, it would not be very difficult to teach classes on gradual
lifestyle changes incorporated with health and nutrition.
There has been a generational shift in how younger consumers view cooking. They prefer
eating out and prepared/cooked meals to actually cooking themselves. This is because younger
customers prefer prepared or preheated meals in addition to eating out since it is more time
efficient. It can engage customers by offering quick meals workshops. . In order to advertise its
class and create awareness it can partner with popular websites such as Fun Cheap SF and
FoodieSF, which are effective in reaching San Franciscans and it is relatively cheap. On the long
run, Rainbow should consider opening a deli and ready to eat meals, as its competitors do in
order to attract more customers. Nonetheless, the main drawback is that it requires a large
investment and it is time consuming.
Social Media - Creating Public Awareness
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Social media marketing is an excellent cost efficient tool to attract and retain customers.
Furthermore, it will allow Rainbow to communicate all of its events in a more efficient way
while using resources it already possess.
The first thing that Rainbow must do is to elaborate a social media bench market analysis
in order to identify its competitor’s best practices. On the same note, Rainbow should evaluate its
Facebook, Twitter, YouTube, and LinkedIn handles as it has few followers and interactions.
Furthermore, it has to select its target audience. It should also appoint a current rainbow worker
to be responsible for content management, functioning as a community manager responsible for
customer engagement through the multiple platforms.
In the medium term, Rainbow must engage daily in the different social media to
strengthen its online presence. It should start by posting on both Twitter and Facebook: news,
store specials and discounts, upcoming events, and such every day. Moreover, most of its tweets
and Facebook post must include pictures, as it most effective. For instance, a Facebook photo
generates 53% more likes and comments, while tweets with images results in 36% clicks, 31%
increase in visits, 41% and increase in retweets (Frink, 2014). It should be established that the
Twitter handle will be primarily used as a customer service tool to respond customer questions.
For example, emulate Dennis or Taco Bell Twitter persona. Both are recognized for being fun
and engaging (Boboltz, 2014). Moreover, Facebook should be used to promote products offered
by Rainbow, especially exclusive brands as well as to address any customer comment.
Once Rainbow is fully established in both Facebook and Twitter, it can expand to other
social media. The first thing to do is to start a blog in the company’s website. The next thing that
Rainbow can do is to start a Pinterest account to post recipes and encourage customers to do so
as well. This is the best approach to capture new customers as when people pin anything from
Rainbow board, it will have Rainbow’s name and a link to its webpage.
Additional Promotions
Rainbow can start giving punch cards to reward loyal existing customers. It can offer
prizes once a customer reaches a certain number of purchases. For example, when a customer
reaches six they will get a sticker or magnet. When that customers accumulates ten punches in
their cards, that person will win a reusable bag. These prizes will be designed to be eye catching
and to feature Rainbow brand so when customers are out people will notice and ask what
rainbow is, or if they are shy google it. Rainbow can easily achieve this as it is not costly.
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Conclusion From its inception nearly 40 years ago through today, Rainbow has consistently stayed
true to their motto, “Food for People, Not Profit.” Its worker-member philosophy with a strong
emphasis on the idea that everyone is important and valued is what makes this worker
cooperative one of the most unique organizations of its kind. Its core belief in vegan foods, bulk
products and healthy lifestyle education continues to make it a leader in the forefront of health
food grocery stores in the Bay Area. However, as years have passed these practices have become
unsustainable for Rainbow´s long term operations. Nowadays, due to growth Rainbow is
experiencing some challenges such as effective internal communications and attracting
customers. This is why Rainbow needs to use its current resources to improve employee
communication and use new marketing strategies involving social media, promotion, and
establishing presence in the community in the short and long term to gain competitive advantage.
The organization had expanded immensely; the number of workers, variety of products
and retail space. Rainbow insistence on keeping their non-hierarchical structure is very
admirable and is the reason why they are still supported by the community. However, as the
environment in the organic industry is fast changing, it is crucial for the company to have a
proactive approach towards these changes. In competing with other food stores and
supermarkets, they must continue to educated customers and gain new customer interest through
other marketing channels. Rainbow will continue to grow. With better marketing efforts, they
stay true to their core value that is to educate the community.
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82(6), 119.
Van Hoorebeke, M. (2014). Personal Communication.
Whole Foods Market. (2014). Store List. Retrieved from:
http://www.wholefoodsmarket.com/stores/list
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Exhibit 1 Organic Products Market Share
Source: Marketing US Organic Foods, 58, United States Department of Agriculture, 2009
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Exhibit 2 Porter’s Five Forces
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Exhibit 3 SWOT Analysis
Strengths
● One of a kind grocery store for vegetarians and
vegans
● Largest retail worker owned business
● Staff passionate about promoting products and
sharing enthusiasm
● Education customers on nutrition and health
related topics
● Cooperative team environment
● Offer locally produced and premium
international goods
● Product bulk labeling
● Community involvement
● Environmental practices
● Loyal customers
Weaknesses
● Location and number of store
● Target relatively small number of customers
● High expansion costs
● large perishable inventory
● marketing rely on word of mouth
● Flat structure could lead to inefficiency due to the fact
that not all managerial staff have a business background
● The philosophy of not being in business for a profit
Opportunities
● With the shift in taste for younger consumer.
Rainbow can capture that market through
offering more pre-cook products or having an in-
store deli.
● Increase outreach to the community through
educating the public about organic products
● Establish strong supplier relationships to secure
a large variety of unique products
Threats
● Increasing amount of large conventional supermarkets
entering the market with own organic.
● Currently, 82% of supermarkets are selling organic
products.
● Organic goods supplier scarcity scarcity Suppliers
might prefer large supermarkets promising better
prices and long term contracts.
● High demand results in farmers not able to keep up with
demand.
● Traditional supermarkets like Safeway, Walmart, and
Costco economies of scale and branding.
● Consumers are eating out more often, this pose a threat
in organic stores that are selling raw food products.
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Exhibit 4 Competitor Analysis
Rainbow WholeFoods BiRite Creamery and Market
Other Cooperatives
Company Structure
Cooperative: flat
hierarchy
Cooperation
publicly traded
Partnership with few
partners
Cooperative
Company Size 260 members 58,000
employees
50 employees less than 50
members
Brand Recognition
Low
Very little
advertising.
Fully depend on
word of mouth.
High
Intense
investment in
marketing
Medium
Long history est 1940
and prime locations in
Dolores park
Low
Little or no
advertising
San Francisco Store Locations
One location in
the Mission.
Large retail
space
Seven locations
with large retail
space
Two prime locations,
small retail space
Usually one
location
Avg. retail space
30,000 sq ft 20,000 sq ft 2,500 sq ft
3000 sq ft
Approximately
2000 sq ft
Variety of Products
Large with
sources from
various small
and medium
suppliers
Large with
advantages in
economies of
scale and scope
Smaller variety of
products offered
Very small: poses
very little
competition for
Rainbow
Variety of pre-cook items
very few options large medium very few options
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Exhibit 5 Tangible and Intangible Resources 1. Tangible
Land and Building
● One store in the Mission district comprising a total area of 39,000 which includes 18,000
square feet of retail space. It also has three parking spaces.
Employees
● 260 worker-owners since Rainbow is a cooperative.
● All of the workers have voting rights and are divided in 18 departments.
Product Line
● Rainbow carries a diverse product line of goods such as baked goods, bath and body, beer
and wines, books and gifts, bulk foods, bulk, herbs, cheese, house ware, packaged goods,
produce, refrigerated goods, sundered teas, and vitamins.
● All of food products are made with natural ingredients and almost of all them are organic.
In particular, products are: non-gmo, wild crafted, gluten free and mostly locally
produced. With this in mind, in rainbow customers can find extensive product lines and
brands not available in other stores in the city, thus creating variety.
Equipment
● Rainbow Grocery´s ecological ambition has made the company invest in ecological
equipment to minimize its environmental impact. These included a daylight harvesting
system, energy-efficient cooler compressors and 13.3 kilowatt solar panel system for
electricity and heating demands.
2. Intangible Culture
● Since Rainbow is a worker owned cooperative who are committed to work on mutual
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respect, love and democracy.
● Follows the principle that everybody´s work is valuable, skilled or not.
● Decision making is based on a democratic system, each employee has equal power to
vote on the ballot.
● The different workers are categorized in a department and those departments make their
own operational decisions. For example, cashiers collectively decided to ban cellphone
use at the registers. Even though, there are official president and board of directors, those
positions are just in place for legal reason as the organization structure is flat.
Knowledge
● Employees are trained to educate customers about healthy food and vitamins offered.
Plus, they are very knowledgeable on recipes and preparation instructions as well.
Reputation and Brand
● Pioneer in organic products in San Francisco. In fact, it is the first store to target
vegetarians and vegans since the 70´s.
● Well known for fair trade, organic, non gmo, and gluten free goods.
● The first businesses to become green in San Francisco. In fact, it belongs since the 90´s to
San Francisco Green Business and has been key in developing green practices in the city.
It was the first grocery store to have solar panels.
● Also well known in the community for having many educational events as well as
community outreach in partnership with local organizations.
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Exhibit 6 Business Strategy: The Diamond Framework The Elements of Strategy
Arena
● Provides affordable non gmo vegetarian food products and natural personal care and
household items which have a minimal negative impact ecologically and socially.
● Target Market: Health conscious consumers looking for local organic goods produced in
ethical ways.
● Market segment: middle class
● Geographic Scope: San Francisco Bay Area
● One location in San Francisco
● The store is inviting and designed taking advantage of natural light and other elements to
increase energy efficiency in the store as well as diminishing its carbon footprint.
Vehicle
● Always looking in the local communities for suppliers who share the same sustainable
philosophy.
● Partnered with Sport Basement to screen movies about healthy eating and the
environment
● Partnered with San Francisco Green Business Association in order to receive guidance in
sustainability.
● Part of green fairs to encourage consumption of organic produce and natural products.
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Differentiation
● The only organic supermarket that do not sell animal meat, only organic produce and
provide customer with full transparency on the sourcing of products.
● Employees are trained to give an excellent customer service. They are knowledgeable in
products ingredients, preparations, and suggestions.
● Creates value by selling organic and local products in bulks and by being a resource for
community to exchange information about health and sustainability of foods on a
household table.
● Organize events, workshops, fairs, etc. for social and environmental causes. For example:
on February, the company organized a Hyian relief drive where the company donated
100% of its profits for 3 days.
● Offer discount for customers buying in bulks and when they bring their own container for
honey and similar products.
Staging
● Currently, Rainbow is not planning in any expansion.
● Engaged in invest in new retail technologies to gain efficiency
Economic Logic
● Reduce costs by buying and selling in bulks (in a way economies of scale)
● By sourcing locally, transportation costs also decreases
● Energy Efficiency such as daylight harvesting system, solar panels, and solar thermal
heaters
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Exhibit 7 Rainbow: Green Business
Since Rainbow mission is to provide affordable vegetarian food with minimal negative impact
ecologically and socially, it imperative for the business to exceed the standards set by the San
Francisco Department of the Environment. Notably, Rainbow commitment to sustainability has
been institutionalized in the company since 1990. This is why the company is a certified San
Francisco Green Business. In its efforts to be sustainable, Rainbow has been able to achieve
energy efficiency and benefit from tax credit and rebates by pursuing the following activities:
➔ Investing in a Daylight Harvesting System.
◆ Utilizes available daylight to reduce the usage of non-renewable energy. This is
done by combining skylights with an automatic control.
➔ Installing energy-efficient compressors for our coolers.
➔ Setting up 72 13.3-kilowatt solar panel system for electric usage and hot water heating.
➔ Creating a Native Garden at 13th Street entrance comprised of native plants from
California and the Bay Area.
➔ Offering financial incentives for customers when they reuse containers and bags to
purchase bulk items.
➔ Providing battery and used cooking grease recycling station for the public.
➔ Providing “E-Cycle Day” where the community can properly dispose of old electronics
containing potentially toxic materials.
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Exhibit 8 Rainbow’s Departments and Committees by Functions
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Exhibit 9 Interview
Interview with Rainbow’s PR department representative
Matt Van Hoorebeke
Cashier / PR Committee
Industry
1. What are some of the business trends in your industry?
● Consumers are more geared towards buying pre-made food and going to restaurants.
We’re seeing less people buying raw ingredients
● With the rise of rent in San Francisco, we find many of our loyal customers are forced to
relocate outside of San Francisco.
2. What major challenges does Rainbow Grocery currently face? (or the industry, in general,
faces)
● Some of our challenges have to do with keeping up with what’s happening in each team.
There’s 18 teams here and sometimes information gets lost.
3. Who do you consider as your biggest competitors? (Supermarkets: Safeway and Lucky, or
Organic food store: BiRite)
● We think WholeFoods is. There’s a time where we banned photo taking because
WholeFoods was spying on us. I don’t think the other cooperatives are as large as we are.
In fact many of them are still the side they were 20 years ago.
Organization
4. We know that Rainbow Grocery is non-hierarchical, can you tell us some of your major
business function within the organization? (Teams, departments)
● Currently have 260 workers-owners. in order to maintain membership, each worker-
owner must be able to work at least 25 hours per week
● We are non-hierarchical with a president, board of directors,16 autonomous groups and
many committees.
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● The president and board of directors are for bank and other statement purposes. The
organization structure is flat and all members have equal power.
● Committees, president and board of directors serve 1 year terms. They are elected
through voting
● Decision making is based on democratic system, everyone has equal power to vote
(ballot). Each department make their own “operational” decisions. e.g. the cashiers
collectively decided to ban cellphone use at the registers.
5. How many members do you have as a part of the cooperative? How many of them are
employees?
● There are 260 worker-owners and everyone get a share of the profit. it will depend on
how long the individual has been with the company. In order to maintain membership, a
worker-owner must work a minimum of 25 hours per week.
Business Strategy
6. What do you think Rainbow Grocery is does well and what do you think needs improvement?
● We have really good employees that are very knowledgeable of the products we have.
Our main goal is to educate the public about healthy living. Therefore, it is crucial that
our employees are helping the customers.
● we source the highest quality of products
● Source locally and be transparent with all products
● Rainbow is a reflection of San Francisco, its employees, products and customers
● constantly educate customers:
○ online product database
○ instructions on products
○ knowledgeable members
○ workshops and tours
7. Does the company anticipate expansion?
● We have been growing for many years. We’ve expanded by purchasing the building next
to us for inventory space. Our retail space is 17,000 square feet. We’re looking to
renovate the entire place so you will see that many of the products will be relocated.
8. We know that Rainbow focuses a lot on energy conservation and community engagement. Can
you tell me some of your community engagement activities?
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● Social/community engagement:
○ instrumental in creating the California Certified Organic Farmers CCOF
○ mid 1970s: pioneered the health food movement
○ giving back to schools through SCRIP Program, in 2012 $43,000
○ Grants to pledging cooperatives (providing the know-hows)
○ Donation to Typhoon Haiyan Relief $30,000 (3-day profits)
○ Discounts
○ Provide a public board for the community to post. eg. occupy movement
information
● Environmental
○ Skylight and daylight harvesting to save on electricity usage
○ energy efficient compressor coolers
○ solar panels
○ 10% discount to cyclist, partnered with SF Bicycle Coalition
○ battery and fluorescent recycling stations
○ E-cycle Day for people to properly dispose electronics
○ Discounts for customers who reuse containers and bring their bags. 10 cents for
bags, 5 cents for containers
○ certified SF green business: first movers
9. You’ve put much effort on energy initiatives, does the company have innovations that are
patented?
● No we don’t have any patents. Just the different initiatives that we’ve been doing to
conserve energy.
Financial Health
10. Can we have access to your latest financial statements (last fiscal year)?
● For 2013 I think our net profits is about $6 million but beyond that I will not be able to
disclose the information.
11. What was Rainbow’s profit for the last fiscal year?
● unable to disclose
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12. What is the number of employees?
● 260 worker-owners, no employees. all worker-owners work for at least 25 hours a week
13. What technologies are present in Rainbow’s operations?
● We have a point of sales system which is a mess. it is not customizable to what we want
it for
● We have a server where we communicate through emails.
Additional email questions 1. Email Matt about revenues and how communication works at Rainbow.
I don't know much about revenue. Rainbow workers communicate through phone,
email, wall posts, meetings, etc.
2. Do they have an intranet exclusive to Rainbow employees?
We do have our own exclusive network.
3. How many departments they have and what are the names and what they do?
Departments include:
Bakery, Cashier, Customer Service, Herbs, Housewares, Produce, Sundries, Bath &
Body, Vitamins & Supplements, Cooler & Frozen, HR, Accounting, Bulk, Cheese, Beer
& Wine and Packaged Foods
I think that's it. Each department is responsible for its own day-to-day operations
including schedules, ordering supplies, buying new products, hiring new department
members, and firing in some cases. There are other committees that take on tasks that
affect the entire store, or disciplinary actions that are beyond departmental matters.
These include our Board of Directors, Storewide Steering Committee, PR Committee,
Ecology Committee, R&D Committee, etc.
4. Do you have a company org chart?
I'm not aware of any org chart. I'd love to see one. I bet it'd look a lot different from other
corporations'. We have no traditional corporate hierarchy at the Rainbow.
